FCA proposes 0.8% payday loans cap

payday loans Just what are we going to do with payday loan companies? They're not doing anything illegal per se, but no-one likes having them around.

The Financial Conduct Authority have come up with a plan.

They want to see a cap on the amount that payday lenders can charge their customers, and they've announced what they're going to do.

The short version is that payday loan rates should be capped at 0.8% a day of the amount borrowed, and the FCA add that in total, no-one should have to pay the loan companies back more than double what they borrowed.

These changes will come into play in January 2015, and some say that those desperate for money will avoid companies like Wonga and Quick Quid, and go back to old fashioned loan sharks who will reclaim debts with thumb screws or whatever it is they do.

The new rules say that there's also going to be a cap on default charges, which is probably being set at £15.

FCA chief executive Martin Wheatley said: "For the many people that struggle to repay their payday loans every year this is a giant leap forward. From January next year, if you borrow £100 for 30 days and pay back on time, you will not pay more than £24 in fees and charges and someone taking the same loan for 14 days will pay no more than £11.20. That’s a significant saving."

"For those who struggle with their repayments, we are ensuring that someone borrowing £100 will never pay back more than £200 in any circumstance."

The FCA predict that these new rules will see payday loan providers losing £420m in revenues each year.


  • OldGit
    Why does having a cap on rates have anything to do with people having to go to loan sharks? Its not like people are not getting a loan, there just not getting (as) screwed with the rates. Could it be the loan companies are worried they are going to lose money?
  • People P.
    to OldGit part of the reason the rates are so high is that the payday loan companies have "poor" customers that tend to pay late or default on their loans. This increases their costs. If there is a cap on rates, some people who currently go to payday loan companies will no longer be able to as they will be classed as "high risk" (i.e. not profitable) If they are desperate they will go to loan sharks. Whilst this cap may make lenders more responsible it could also restrict people's ability to borrow. Also with the cap in place, loan companies may be more likely to take default action sooner. Today a company may be happy with customers missing payments as there is money in it for them, with a cap in place it could be straight to the courts and black marks on the customer's credit history. As an aside would the cap apply to the interest charged by the courts?
  • Alexis
    Payday lenders say "we don't want customers that won't pay us back. That makes no business sense." Yet they lend to categories of people of whom a large proportion will not pay them back. If what they say was true, they wouldn't lend at all to people who have a credit file full of defaults. Yet they do.
  • People P.
    to Alexis Payday lenders mean "we don't want TOO MANY customers that won't pay us back". A policy that reduces the number of defaulters but also disproportionally reduces the number of profitable customers will not be adopted as it will hit the profits. If the cost of fixing a systemic problem is greater than the cost of living with it, there will be no fix. In the early days of credit cards, fraud was a cost the credit card companies were prepared to bear. As fraud increased, fighting fraud made business sense. In the early days of Direct Debits(especially before automation), banks did not actually check that a direct debit instruction was in place before paying the money out, it was cheaper, administratively, to handle the small number of errors. Banks will lend to people that you and I may think are a bad risk as long as there is a profit (or the politicians start interfering)

What do you think?

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